EPY: Understanding Earnings Proration for Contract Pay (Doc ID 1458936.1)

Last updated on APRIL 11, 2024

Applies to:

PeopleSoft Enterprise HCM Payroll for North America - Version 9.1 to 9.2 [Release 9]
Information in this document applies to any platform.

Purpose

When an employee's contract pay earnings change, the system allows you to determine how to apply the pay rate change to future earnings. When you click the Calculate Compensation pushbutton on the employee’s Job – Compensation page, a subpage is presented with the settings which control how the new pay rate is to be applied.

Note: There is no ‘retro’ functionality associated with Contract Pay. Pay rate changes are entered as of a current effective date, and the proration options allow you to allocate earnings based upon the contract term, payment term, number of work days, or not to prorate the pay rate change at all.

The following options are available for contract pay rate changes:

No Proration. Select this option if you want the employee to receive the entire amount of the increase.
Prorate Over Contract Period. This option prorates the change over the number of pay periods in the contract term defined by the contract begin and end dates. For example, if the contract term is for nine months, and the contract increases by $3000 after four months (with five months remaining in the contract term), the employee will receive 5/9 of the increase, or $1666.67.
Prorate Over Payment Period. Select this option to prorate the rate change over the number of pay periods in the payment term, defined by the payment begin and end dates. For example, if the payment term is for 12 months, and the contract increases by $3000 after six months (with six months remaining in the contract term), the employee will receive one half of the increase, or $1500.00
Prorate Using Effective Date. This option will prorate the rate change over the number of days in the contract. For example, if the contract is for 175 working days and the rate change is effective on day 75 of the contract, the employee will receive 101/175 of the increase, or $1731.43.

Note: Prorate Using Effective Date is only applicable if the contract payment method is Actual.

When entering salary increases, you have the option to issue a lump sum payment . The amount of the increase is determined by the proration options selected, but the lump sum option allows you to pay the increase over the remainder of the payment terms, or whether it is allocated across the entire payment term , with a ‘retro’ payment for the months already paid.

When the Lump Sum Retro payment checkbox is selected, the system allocates the increase across the entire term, then issues a retro payment for the pay periods already paid. For example, if the proration method is Prorate Over Payment Period for a twelve month payment period, and the increase occurs after six months have been paid (with six months remaining), the system will allocate the increase over 12 months, and make a lump sum payment for the first six months.

When the Lump Sum Retro payment checkbox is not selected, the system adjusts the increase over the remainder of the term. For example, if the payment term is twelve months and the increase occurs after six months have been paid, the increase is paid over the remaining six months.

Note: When running CNTPAY01, the run control provides an option to pay the lump sum amounts in a separate check, or you can include them with contract earnings on the next regular check.